Month-to-month change in the Chicago area has stabilized for new orders, very good news reflected in a 3-1/2 point rise in the Chicago purchasing managers' index to 43.4 in July. The new orders component jumped 6.4 points to a nearly break-even 48.0. A 50 reading would indicate no change from the prior month, so the 48.0 reading indicates only marginally weaker order levels in July compared to June. There is some encouragement also for employment which rose more than 6 points to 35.3 as it hopefully also continues to climb to 50.
There are still imbalances led by rapid destocking of inventories as businesses bring down cash expenses. The inventories index fell nearly 9 points to 25.4, a reading indicating that inventory levels for a great share of Chicago businesses are lower in July than in June. But given the prospect of restocking tied to the return of GM and Chrysler production, the inventories index could soon begin its climb to 50. Backlogs, at 32.1, continue to thin at least for now, but delivery times have stabilized at 49.6, perhaps reflecting capacity cutbacks in the supply chain more than an improvement in shipping levels. Production still shows month-to-month contraction at 43.3 which however is still a 4-point improvement from June. Prices paid fell slightly to 35.0 reflecting month-to-month contraction in energy prices and also the general absence of pricing power.
Readings in this report are very likely to continue moving toward 50 levels as they have been in a more accelerated way in the much larger national report issued by the ISM (Institute For Supply Management). The ISM's manufacturing report for July will be posted Monday. ISM officials have been looking for their PMI to hit 50 in either August or more likely in September. The stock market got an immediate lift on today's report.